In the well-lit offices and dark warehouse aisles, there is a treasure hunt under way. Despite a still-expanding manufacturing landscape, machine designers and OEMs face parts shortages and a fractured supply chain. They have their designs ready to go into production, but they lack the availability of the one last piece of their project.
It’s what distributors who attended May’s EDS Leadership Summit in Las Vegas called “The Golden Screw”—the single part needed to complete a project. In reality, it’s not a quest for a single item as much a search through the vast supplies in the market for parts that can perform the same function, but have greater supply availability. It also is changing the dynamic between design and production teams, their suppliers and their distributors—forcing new discussions, greater collaboration and fresh questions.
“Are components available? Are these the right parts to have on design? There’s now a bigger willingness to put in an alternate source,” said Don Akery, a distribution industry veteran and now the CEO of Waldom Electronics. “We’re no longer a commodity company; we’ve become a consultancy. That’s where electronic distribution needed to go.”
Added Jim Banovich, CEO of Marsh Electronics, “What we’re seeing our customer base is that they’re looking for more input from us. They’re looking for design assistance.”
Technology and Design
In a tight supply market, the conversations have changed. Designers and distributors are working more closely together to help not just identify the parts supply, but also provide engineering support for those efforts. With the expansion of CAD/CAM and 3D design tools and greater connectivity to parts suppliers, designers are finding it easier to evaluate not just which part they’d prefer to use, but which one can give them both productivity and availability.
“There’s a lot of engineers wouldn’t have asked. That has changed,” said Richard Diaz, vice president of operations and supply chain at Avnet. “They’re looking at alternatives and optimizing design. There’s a lot of collaboration. We’re letting them know all of their options.”
As an organization representing different product lines, we work with so many different manufacturers and design engineers. We like to get in front of engineering teams,” said Joshua Uhlich, director materials for Bisco Industries. “Especially in aerospace, designers like to use standard parts that have been around for decades. We’re showing them there are some new solutions out there.”
“They are designing for availability,” said Karim Yasmine, corporate vice president at Future Electronics. “We ask, ‘How do we guide our customers get better control of their supply chain?’ The good news is the creativity of customers is picking up.
“Customers are taking advantage of our engineering services, and we expect that will continue,” Yasmine added. “It’s our job to provide volume optimization. A lot of manufacturers are fighting over the same capacity. There’s a challenge.”
Distribution Business Is Booming
While the search for The Golden Screw is frustrating for designers and suppliers alike, the business of distribution is stampeding forward at a strong pace. The Source Today Top 50 Electronics Distributors list shows that despite difficulties in transportation costs, parts availability and worker shortages, the industry continues to expand. (Source Today and Machine Design both are part of Endeavor Business Media’s Design & Engineering group.)
All of the top 20 electronics distributors reported increases in 2021 at a time before inflationary cost increases began to take hold. While revenues from 2019 to 2020 remained largely flat, revenues in 2021 took a giant leap forward.
Arrow Electronics once again heads the Source Today Top 50 list with almost $34.5 billion in revenue in 2021, a 20% increase over 2020. After not participating in past years, Taiwan-based WPG Holdings Ltd. reported $27.8 billion in revenue to move into the second spot, with AVNET/Farrell in third position with $19.5 billion in revenues, a 19.5% increase from 2021.
All of the top 10 electronic distributors surveyed reported more than $1 billion in revenue and all reported double-digit growth rates from 2020. In the 2021 report, 11 companies had more than $1 billion in revenue and six more were between $500 million and $1 billion—or five more than in 2020.
Perhaps the most pressing challenge facing the electronics industry is the continuing semiconductor shortage. “Throughout all of the recent supply chain disruptions it has been challenging to keep high-demand products, like semiconductors, in stock,” said Dave Doherty, president of Digi-Key Electronics, in a written interview with Source Today. “Some product types are in a more ‘normal’ amount of demand, but within semiconductors, for example, microcontrollers, sensors, commodity linear, analog and discrete are still a struggle to obtain in full supply as lead times in many cases have continued to remain on a 40-plus week schedule.
“If there is any silver lining to COVID, it has caused all players in the supply chain to evaluate their resiliency and adaptability to non-linear events,” Doherty added. “Within Digi-Key (#5 on the Source Today Top 50) our model has always been built on selling from available inventory; in hindsight, a more simplistic model than we are faced with today.”
One thing suppliers and manufacturers want above all else is predictability, and that at least is one outcome of recent challenges. “For a time, many segments of business were almost completely shut down. Automotive is a good example,” said Jeff Ittel, executive vice president, Flip Electronics (#35 on the Source Today Top 50) in a written interview. “Fortunately, most of these segments are up and running and forecasting so at least the demand feed is becoming more consistent.
“We have also seen the industry stress lead times and insist on more visibility from the OEM’s buying chips,” Ittel added. “This has helped the semiconductor manufacturers incorporate build plans with a greater window.”
Finding the Pain Points
While revenues have grown and strategic investments have followed, the day-to-day challenges of the supply chain remain unresolved. It has had an impact on every aspect of manufacturing. The April 2022 report from the Institute for Supply Management saw another drop in the PMI Manufacturing Index. The index was at 60.8% in October 2021—more than 20% above the index’s growth level. In April, the PMI had slipped to 55.4%--still well above the 50% growth threshold for manufacturing, but well off its recent highs.
“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment. In April, progress slowed in solving labor shortage problems at all tiers of the supply chain,” said Timothy Fiore, chairman of the ISM Manufacturing Business Survey Committee in the monthly press release on the ISM data. “Panelists reported higher rates of quits compared to previous months, with fewer panelists reporting improvement in meeting head-count targets. April saw a slight easing of prices expansion, but instability in global energy markets continues.”
One chemical process distributor who contributes to the PMI report pointed to the dichotomy in the current manufacturing world. “Tier-2 supplier shutdowns in Shanghai are causing a ripple effect for our suppliers in other parts of China. Long delays at ports, including in the U.S., are still providing supply challenges. Inflation is out of control. Fuel costs, and therefore freight costs, are leading the upward cycle,” the distributor said in the press release. “At some point, the economy must give way; it will be tough to have real growth with such pressure on costs.” And then the distributor added, “Despite the issues and poor outlook, business remains brisk.”
Those attitudes are reflected in the distributors that Source Today interviewed. “In our current environment of tight supply and extended lead times, we encourage customers to create designs with components that can be sourced from multiple suppliers,” said Doherty. “Of course, they can’t do that for every part, but there are often ways to reconfigure a design in a few ways using different part numbers. Having a flexible bill of materials for parts with different manufacturers creates some insurance in the event that stock is not available.”
“Customers are naturally frustrated by the product shortages and are placing orders many months ahead,” said Mark Burr-Lonnon, senior vice president of Global Service & EMEA and APAC Business for Mouser Electronics (#9 on the Source Today Top 50). “Distributors are not immune to global factors and there have been extended lead times and restricted allocation on some of the more popular product lines. Our teams are closely monitoring shortages and are working closely with manufacturers to replenish products as quickly as possible.
“Despite the challenges, innovation continues. We are seeing exciting new sensor technologies, as well as the latest in power management and, of course, advancements in microprocessors, automotive, factory and home automation also will continue to be emerging markets as more technologies are introduced to make buildings, homes and vehicles smarter and safer,” Burr-Lonnon added. “Certainly, 5G, artificial intelligence, robotics, industrial automation and transportation are major growth drivers in the industry.”
“Closer to our Customers”
The partnership between OEMs and distributors, always strong, has been tightened by the shared challenges of the past few years. Distributors are expanding their engineering services and OEMs are getting more creative in their design specifications.
Inflationary pressures and Russia’s invasion of Ukraine adding to the global uncertainty, yet suppliers interviewed by Source Today found optimism—and even some longer-term benefits for the future.
“The underlying demand for semiconductors is exciting and will only continue to grow. Technology is being incorporated into more and more of virtually all products. This bodes well,” Ittel told Source Today. “Hopefully, we can see a day soon with less pandemics, less wars and get back to some level of normalcy.”
“Despite the current supply chain instability and inflationary pressures, there are reasons for optimism and confidence as we look ahead to the future of the industry,” Burr-Lonnon said. “Projections call for robust demand for components, particularly in the data, communication and transportation sectors.
“Our customers have been very focused on building out redundancies and resiliency in their supply chains through creative inventory management programs,” said Luke LeSaffre, CRO of Fusion Worldwide (#10 on the Source Today Top 50) in a written interview with Source Today, “and we expect that part of our business to grow considerably, as holding more inventory becomes a major legacy of this shortage market.
“The current market has brought us closer to our customers,” LeSaffre added. “We have forged a number of deep and enduring partnerships in the wake of this crisis. We are encouraged about what our business will look like when the world eventually emerges from this ongoing crisis.”